September 2, 2015
Most states have some sort of regulation for money transmitters, or any businesses that provide various money transmitting services. This regulation is usually in the form of money transmitter bonds, which are required for such businesses to obtain a license.
Utah has had one of these requirements for quite some time. This year, however, they decided to update their legislation by adopting bill S.B. 24 (enacting the Money Transmitter Act), which further regulates the licensing process. So what does it mean for money transmitters and those who sell or issue payment instruments? Let’s take a look.
There are several important things to know about the bill. First, it defines the fees that money transmitters need to pay to the commissioner. It also defines nationwide database and introduces requirements for who needs to register with this database.
Finally, the bill also provides the Utah Department of Financial Institutions (DFI) with rulemaking authority and three main purposes:
(1) Restrict or prohibit practices that are misleading, unfair, or abusive.
(2) Promote or assure fair and full disclosure of the terms & conditions of agreements
and communications between a customer and a money transmitter.
(3) Promote or assure uniform application of or to resolve ambiguities in applicable state or federal laws or federal regulations.
Now, let’s get into more specifics.
The Money Transmitter Act introduces a fee payable to the commissioner which is calculated by a formula based on your assets. If your depository institution is out of state with a branch in Utah, this doesn’t apply to you.
The bill also introduces a non-refundable licensing fee of $100 and stipulates that you cannot get licensed unless you maintain a net worth of $1,000,000 or more.
S.B. 24 also modified bonding requirement for money transmitters. The most important new requirement is that the money transmitter bond amount is set to a minimum of $50,000. The bond needs to be renewed annually and expires on December 31. If the surety bond is not renewed between November 1 and December 31, this shall cause the license to expire at the close of business on December 31.
Another important thing to remember is that even if you want to cease operations, you will be required to maintain the bond for another three years after you close up shop. Finally, keep in mind that a money transmitter bond will be considered to be in effect unless specifically canceled by you, with a 30-day notice sent to the commissioner.
For those not acquainted with the money transmitter bond, it’s a type of surety bond which guarantees that you will operate your business in accordance with state laws, and will not use fraudulent business practices.
If the contrary is found to be true, you can be held liable for compensations up to the total amount listed on the bond—in the case of Utah, at least $50,000. Keep in mind that bond claims will severely compromise your ability to get bonded next year and will very likely increase your premium.
When filing an application for your money transmitter license, it should also be accompanied by some paperwork along with a history of any criminal convictions you’ve had in the past seven years; a description of your business activities, accompanied by a list of your authorized agents in the state; a sample form of payment instrument and a sample of your contract with authorized agents (if any), as well as a description of all your Utah locations.
These are the main changes brought about S.B. 24 but each section contains numerous details so be sure to read the full text of the bill to avoid licensing complications. Got any questions about the details of your money transmitter bond? Be sure to leave us a comment and we’ll do our best to help.